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It’s Europe versus Europe in a budgetary clash of the titans

A trillion euros is up for grabs and, suddenly, there is an awful lot of grabbing. The EU's executive body, the European Commission, is trying to secure agreement among the 27 member states over its seven-year budget. The richer nations that supply most of the cash, including Germany and Britain, want cuts to the septennial budget; unsurprisingly, the civil servants want more money to spend on their pet projects and have proposed a 5 per cent increase. But the real political battle to come, between those who want more (the Eastern and Balkan states) and those who want to take some back (the northern Europeans), is going to be ugly. Moreover, it will expose to public view the widening fractures in the European project.

You might wonder how a group of nations with such different economies, politics and social attitudes could ever agree on so vast a communal budget. You might also wonder how a group of nations that has so abjectly failed to stop the economic deterioration of one of its smaller members, Greece, could be expected to find common cause. Nevertheless, agree they must or be condemned to a rolling chaos of annual budgets, an outcome that could be much more expensive.

To make matters worse, the U.K. parliament this week fired an early shot by calling for a cut in real terms in the EU budget. David Cameron's coalition government of Tories and Liberals want a real terms budgetary freeze in Europe, meaning a nominal inflation increase of 2 per cent. The coalition's freeze proposal was roundly defeated when 53 Tory rebels joined forces with the Labour opposition to call instead for a swingeing cut in EU funds.

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It won't happen because the U.K. prime minister is almost alone in Europe. He has not a hope in hell of persuading his EU colleagues to support his modest proposal of a budget freeze, much less the U.K. parliament's demand for the severing of European fingers and toes. The House of Commons protest is just flag-waving but what is astonishing is the sight of Labour MPs, proper lefties, rallying behind hard right Tories in a call to rip the guts of the socialist Euro superstate. You could call it opposition tactics – seize any chance to embarass the government.

However, I reckon it is more evidence that the European common ground is cracking like the soil in a long summer drought. Northern Europeans want the budget spent on education, science and infrastructure but the biggest recipients of EU largesse today are farmers in Poland, Greece and Spain. The expansion of Europe to the east has created even more customers for farm support which already consumes 40 per cent of the budget.

Greece's ignominious financial collapse has been a test-case for a great deal more than Europe's single currency. It has asked the embarrassing question that was never posed when the European project was first mooted: are Europeans just good neighbours or are they really family? When the cupboard is looking rather bare, do we divide the loaf into ever smaller pieces or do we just feed our own? This question will be studiously avoided at the coming budget summit this month. However, it is being asked over dinner tables from Dublin to Tallinn.

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About the Author

Carl Mortished is a Canadian financial journalist and freelance consultant based in the U.K. With a career spanning investment banking, journalism and consulting for global companies, he was for many years a financial writer and columnist for The Times of London. More


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